Efforts to address governmentwide improper payments could result in significant cost savings

Why Area Is Important

Reported estimated improper payments governmentwide have steadily increased over the past decade from an estimated $20 billion in 2000 to approximately $125 billion in 2010. An improper payment is defined as any payment that should not have been made or that was made in an incorrect amount (including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable requirements. Reported improper payments also include payments for which insufficient or no documentation was found. GAO's work has demonstrated that improper payments continue to be a long-standing, widespread, and significant problem in the federal government.

What GAO Found

For fiscal year 2010, about 20 federal agencies reported estimated improper payments for over 70 programs totaling about $125.4 billion, for a governmentwide error rate of about 5.5 percent. According to GAO's analysis of those agencies' fiscal year 2010 Performance and Accountability Reports (PAR) or Agency Financial Reports (AFR), the majority of reported estimated improper payments for fiscal year 2010 is accounted for by the following 10 programs:

Program

Agency

FY 2010 estimated improper payments

Primary cause(s)a

Medicare Fee-for-Service

Health and Human Services

$34.3 billion

Medically unnecessary services and insufficient documentation

Medicaid

Health and Human Services

$22.5 billion

Insufficient or no documentation provided for conducting medical review and cases that were either ineligible or their eligibility status could not be determined

Unemployment Insurance

Labor

$17.5 billion

Eligibility errors, errors in handling separation issues, and claimants who have returned to work and continue to claim benefits

Earned Income Tax Credit

Treasury

$16.9 billion

High turnover of eligible claimants, confusion among eligible claimants, complexity of the law, structure of the program, unscrupulous return preparers, and fraud

Medicare Advantage

Health and Human Services

$13.6 billion

Insufficient supporting documentation, and errors in the transfer of data and payment calculations

Supplemental Security Income

Social Security Administration

$4.8 billion

Incorrect computations, misapplication of an income or resource exclusion, and inadequate verification of accounts and wages

Old Age Survivors' and Disability Insurance

Social Security Administration

$3.2 billion

Computation errors; nonverification of earnings, income or work status; and incorrect processing of applications or payments

Supplemental Nutrition Assistance

Agriculture

$2.2 billion

Incomplete or inaccurate reporting of income by participants and incorrect eligibility determination by caseworkers

National School Lunch

Agriculture

$1.5 billion

Verification and authentication errors including inadequate documentation and fraud or misrepresentation by participants

Pell Grants

Education

$1 billion

Verification errorsb

Source: GAO

aAs reported by the agencies.

bPrimary causes were provided by the Department of Education and were not reported in the AFR.

Agencies have made progress in reducing improper payments, and, in some programs, they have reported reducing the rate of improper payments. For example, the Department of Health and Human Services (HHS) reported that the fiscal year 2010 Head Start program's estimated improper payments decreased by $90 millionor 1.3 percent of total program outlaysfrom the estimated amount reported for fiscal year 2009. HHS reported that it reduced improper payments errors by issuing additional guidance for employees on verifying income eligibility and developing a standard template form to help guide grantees in the enrollment process. In another example, the Department of Agriculture reported reductions from fiscal year 2009 to fiscal year 2010 for seven of its programs, including the Marketing Assistance Loan Program which had a reduction in improper payments of about $50 millionor 1.75 percent of total program outlays. The agency reported actions taken to reduce improper payments, which include providing additional training and instruction on improper payment control procedures, and integrating the employee's individual performance results related to reducing improper payments into annual performance ratings.

Nonetheless, the federal government still faces challenges in determining the full extent to which improper payments occur, and in ensuring appropriate actions are being taken to reduce them. For example, three agencies have not reported on the extent of improper payments for seven risk-susceptible programs with significant amounts of outlays. Most notably, HHS has yet to report a comprehensive improper payment estimate amount for the Medicare Prescription Drug Benefit program, which had about $59 billion in outlays in fiscal year 2010. However, HHS expects to report a comprehensive estimate for this program in fiscal year 2011. In addition, it is not always clear whether agencies are identifying the root cause or the underlying internal control weaknesses that caused the payment error in order to determine the appropriate corrective action.

To help reduce improper payments, the President issued (1) Executive Order 13520, Reducing Improper Payments, in November 2009, focused on increasing transparency and accountability for reducing improper payments, and creating incentives to reduce improper payments; (2) a Presidential Memorandum in March 2010 that expands agency efforts to recapture improper overpayments;[1]and (3) a Presidential Memorandum in June 2010, directing that a Do Not Pay List be established to prevent improper payments from being made to ineligible recipients. Moreover, in July 2010, Congress passed the Improper Payments Elimination and Recovery Act (IPERA) to enhance reporting and recouping of improper payments. These actions further heightened awareness of the need to reduce improper payments and eliminate waste, fraud, and abuse in federal programs. In addition, the President has set goals, as part of the Accountable Government Initiative, for federal agencies to reduce overall improper payments by $50 billion and recapture at least $2 billion in improper contract payments and overpayments to health providers, by the end of 2012.

Under the Executive Order, the Office of Management and Budget established a Web site (www.paymentaccuracy.go ) to enhance transparency and accountability, and designated 14 high-error programs to focus attention on the programs that significantly contribute to the federal government's improper payments.[2]The Web site contains important information on the programs' senior accountable officials responsible for efforts to reduce improper payments; current, targeted, and historical estimated rates of improper payments; why they occur; and what agencies are doing to reduce and recover them. For example, the Web site reported a current improper payment rate for HHS's Medicare Fee-for-Service program of 10.5 percent for fiscal year 2010 and a reduction target for fiscal year 2013 of 5.8 percent.

IPERA established additional requirements related to manager accountability, recovery auditing, compliance and noncompliance determinations and reporting, and an opinion on internal controls over improper payments. For example, IPERA repealed a previous recovery audit requirement and enacted a new, broader requirement for agencies to conduct recovery audits for those programs with at least $1 million in total program outlays, where cost-effective. Final guidance on expanding payment recapture audits is expected to be issued under IPERA implementing guidance, in early 2011.

[1] Payment recapture audits, also called recovery audits, are conducted to identify and reclaim payments made in error.

Actions Needed

GAO views these efforts as positive steps toward improving transparency over, and reducing, improper payments; however, it is too soon to determine whether the activities called for in Executive Order 13520, the Presidential Memoranda, and IPERA will achieve their goals of reducing improper payments while continuing to ensure that federal programs serve and provide access to intended beneficiaries. Identifying the nature, extent and underlying causes of improper payments is an essential prerequisite to taking action to reduce them. Moreover, corrective actions needed to reduce improper payments vary across specific entities and programs. Until the federal government has implemented effective processes to determine the full extent to which improper payments occur and to reasonably assure that appropriate actions are taken across entities and programs to effectively recover and reduce improper payments, the federal government will not have reasonable assurance that the use of taxpayer funds is adequately safeguarded.

In addition, the level of importance the agencies and the administration place on the efforts to implement the requirements established by IPERA, the Executive Order, and other guidance will be a key factor in determining their overall effectiveness in reducing improper payments and ensuring that federal funds are used efficiently and for their intended purposes. If fully and successfully implemented, the requirements will provide additional transparency, improve oversight and accountability, and should help to reduce the federal government's vulnerability to improper payments in the future. Continuous congressional oversight is key to determining whether these recent efforts are effective in reducing improper payments. Congressional efforts to monitor agencies will be essential to ensure they are taking action to fully implement these legislative requirements to improve accountability, achieve targeted goals, and reduce overall improper payments.

Framework for Analysis

This analysis is based on agency-reported information in their fiscal year 2010 Performance Accountability and Agency Financial Reports, as well as previous GAO reports.

Area Contact

For additional information about this area, contact Beryl H Davis at (202) 512-2623 or davisbh@gao.gov.